"Edinburgh are a really quality side," he said.
"People underestimated them in the build-up to the early rounds of the Heineken Cup but since that win [against Munster], they've also defeated Leinster, Perpignan and Gloucester away and that's shown they're a team that has really bought into what Alan Solomons is trying to do there.
"They've got some quality players playing well and they're a challenge."
Munster captain Peter O'Mahony was one of the standout performers in the win in Kingsholm last weekend and the Corkman echoed his Head Coach.
O'Mahony said: "They've come a long way, they have a good game-plan and they implement it very well. They're very physical and not just in the pack, they have a couple of big men out in the backs, some gamebreakers, and with [Greig] Laidlaw kicking the points they're a formidable side.
"But this week we need to look after our own house and get ourselves right for Sunday," he added.
That defeat to Edinburgh back in October has been followed by 10 wins in 11 games but O'Mahony revealed that loss hasn't been forgotten.
"We're still hurting and disappointed with the way it went in the first game and it would be silly of us not to have that in the back of our minds this week," he said.
"Obviously the nature of the beast means we want to get revenge but this week, of all weeks, we've got to put that to one side and worry about implementing our game-plan and being physical this weekend and having a good performance at home."
The Munster support was out in force at Kingsholm and O'Mahony hailed the effect that the fans had on the team last weekend.
"They've been unreal for us over the years," said O'Mahony.
"About 60% of the crowd were Munster fans in a place that would be renowned for a hostile environment from the home crowd. For it to be half-full of our fans an hour and a half before kick-off was bizarre and it set the tone for us.
"We went into the dressing room and we said 'this is going to be a special one', and that's exactly what happened, it was a special day out for Munster," he added.
Penney had similarly complimentary words and is hoping for more of the same on Sunday.
He said: "It's a special group - the Red Army - everywhere we go [they come and support us], it's an incredibly unique experience around the world. Having coached a lot in the southern hemisphere, there's certainly nothing like the travelling support that Munster get.
"Let's hope that the Sunday roasts are all done and dusted by about 12 o'clock and then the people can get down to Thomond Park and enjoy a lovely afternoon's entertainment by the Munster boys," he added.
Munster face Edinburgh at Thomond Park on Sunday at 12:45pm.
Please note that only north terrace tickets are now available for this game so book now to avoid disappointment.
Tickets are available to purchase online here or by calling Ticketmaster on 0818 719 300. Tickets are also available from Munster Ticket Offices and all Ticketmaster outlets.
Junior North Terrace €10
North Terrace €30